A guide to tax-efficient investing

When investing to grow your wealth, you should consider the potential tax liabilities that could sting your finances, and therefore aim to invest in the most-tax efficient way.

While this can be challenging, there are many ways you can invest tax-efficiently to build your wealth more effectively.

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Read on to find out more.

Seek out a modern wealth management service

One of the most crucial steps to take when considering tax-efficient investing, is to seek the expert services of a modern wealth management company.

A wealth manager can offer unique and tailored guidance on how to structure your investments to shelter your money from tax, make the most of personal allowances, as well as evaluate the right balance of risk and return that’s best suited to growing your wealth.

Your adviser can also take into account your current financial circumstance, as well as your future goals, to establish what investments and account types are best suited to your individual needs.

Before embarking on any investment journey, seeking the guidance of a modern wealth manager is one of the most essential steps you can take.

Save money into ISAs

Another thing to consider when trying to invest tax-efficiently, is the use of individual savings accounts (ISAs).

ISAs allow you to invest your savings in accounts referred to as ‘tax wrappers’ – known as such for their ability to shelter your savings from any tax charges.

Each tax year, you can invest savings up to a certain allowance from one of four different ISA types:

Cash ISA
Stocks and shares ISA
Innovative finance ISA
Lifetime ISA

As of the current tax year (2022/2023), the ISA allowance is £20,000. This means £20,000 of your income can be distributed into one or more of these ISAs each year, and be sheltered completely from tax.

For additional tax efficiency, you can even consider combining your allowance with a spouse or civil partner, where your individual £20,000 allowance essentially doubles to £40,000.

This way, you can distribute savings from each of your incomes into the two ISAs to make the most of the tax wrappers, and increase your tax-efficiency.

Contribute towards your personal pension

You can also make personal pension contributions for tax-efficient investing.

A personal pension allows you to contribute money each year into a pension pot, from which you can draw an income in your retirement.

Similar to an ISA, your pension has an allowance, both annually and for an overall lifetime.

As of the current tax year, your annual allowance is £40,000, and the lifetime allowance – the total amount you can have in your pension pot sheltered from tax – is £1,073,100.

Discuss with your financial adviser all your retirement goals, so that you can accurately structure your pension contributions for the highest level of tax-efficiency, combined with the most appropriate contributions suited to growing your wealth for retirement.

Seek ongoing financial advice

With tax-efficient investing, it may be best to seek ongoing financial advice from your chosen wealth manager.

Your financial circumstances can be vulnerable to change, whether it be through changes in your career, financial dependants, or additional income.

Therefore, as your circumstances evolves, it is likely your approach to tax-efficient investing will change too. With a modern wealth manager who offers ongoing financial advice and innovative online tools, you can continuously evaluate and review your investments, to ensure you maintain the best level of tax-efficiency as your circumstances change and adapt.

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With our guide to tax-efficient investing, you can implement these key steps into your own financial plan.

More importantly, seeking the expert guidance of a modern wealth manager can help you on your way to successfully investing and reaching your financial goals.

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Please note, the value of your investments can go down as well as up.